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Double-digit
growth - health is the main market driver
By
Roger Dilworth
Reprinted
from the April 2005 issue of Soft Drinks International
(softdrinksinternational.com)
The US
functional beverage market consists of energy drinks, sports beverages
and nutrient enhanced drinks. The latter segment includes vitamin-,
mineral- and herbal-enhanced fruit drinks, teas, dairy drinks and
waters. Wholesale sales of functional beverages was $4 billion in
2003.
Red Bull
North America created the energy drink segment in the US when it established
an office in California in 1997. Another California-based company,
Hansen Natural Corporation, followed that year with Energy and other
functional drinks. The segment has attracted new players in the past
several years, including Coca-Cola, Rockstar, AriZona and PepsiCo.
Wholesale sales of energy drinks grew to $653 million in 2003.
In the
US, Red Bull has used distribution as a marketing tool, initially
restricting the product to fashionable nightclubs in order to influence
cultural tastemakers. This “opinion leader” strategy has
contributed to its success, as Red Bull owned more than 60% of the
energy drink market in 2003. The brand has not relied solely on underground
marketing, however: it upped its advertising spending in the US from
$2 million in 1998 to more than $40 million in 2003, according to
Competitive Media Reporting. Although hip youths are the most visible
targets of energy drink marketers, the beverages also appeal to overworked
executives and truck drivers, among others. Diet energy drinks have
emerged as a small sub-segment, which has expanded the consumer base.
In addition to bars and nightclubs, energy drinks’ primary distribution
channels are convenience and gas stores.
More
energy increases share
Hansen
Energy and Red Bull are packaged in the 250-ml (or so) slim cans that
have come to characterize energy drinks throughout the world. However,
energy drinks packaged in 16 oz cans have increased segment share
because of their lower price per ounce. Hansen has enjoyed a significant
growth in sales due to its 16 oz Monster line of energy drinks, while
its slim-can drinks have stagnated. Similarly, in early 2005, Coca-Cola
introduced Full Throttle, a 16 oz energy drink, to replace its slim-can
product, KMX. PepsiCo, which sells SoBe Adrenaline Rush and Mountain
Dew Amp slim-can energy drinks, also markets a 16-ounce energy drink
under the SoBe No Fear name. Last but not least, independent beverage
company Rockstar notched about $50 million in sales for its 16 oz
energy drinks in 2003.
As in
Europe, sports beverages are positioned and marketed as fluid replacement
or thirst quencher beverages. Gatorade has enjoyed an 80+% share for
most of the last decade. In 1994, both Coca-Cola and PepsiCo rolled
out competitive brands – Powerade and All Sport, respectively.
The cola giants grabbed most of the remaining 20% or so of the sports
beverage market. However, the story changed in 2001. That year, PepsiCo
sold the rapidly declining All Sport to Monarch Beverage Company and,
more important, acquired Quaker Oats and Gatorade. In 2003, wholesale
sales of sports beverages were $2.7 billion.
Science-and-sports
strategy
In the
last 20 years, Gatorade has pursued a science-and-sports marketing
strategy. Quaker Oats claims that Gatorade’s 6% carbohydrate
level is ideal for rapid fluid absorption. In addition, the company
states that Gatorade’s higher-sodium formula is better suited
for hot and thirsty consumers than competitors’ sweeter tasting
sports drinks. Gatorade has conducted a long-running ‘Is It
In You?’ advertising campaign, which features non-famous athletes
“bleeding” coloured sweat. It has also employed myriad
celebrity athletes – Michael Jordan being the most famous –
and sewed up the most prestigious sports-related sponsorships.
Sports
beverages have expanded their consumer base and usage occasions through
the proliferation of package sizes and formats. (It is hard to envisage
that Gatorade was once primarily in glass since it is currently overwhelmingly
in plastic to fit its ‘on-the-go’ image.) For example,
in 2001, Quaker expanded availability of ‘EDGE,’ a new-fangled
‘ergonomic’ sports cap plastic bottle that allows for
easier gripping and handling. Gatorade has also created several extensions
of its core Thirst Quencher line, ensuring a stream of new flavours
to keep consumers loyal to the franchise.
Gatorade
is a warehouse delivered brand and thus has a strong presence in supermarkets.
But it, like Coke’s Powerade, has strong distribution as well
in immediate consumption channels such as convenience stores. Other
outlets like small groceries, drug stores and delis are also vital
to the sports drink immediate consumption market. Also, a growing
number of non-traditional retail outlets (e.g., sporting goods stores)
have helped to augment the immediate consumption sales of sports drinks.
Marketed
as healthy refreshers
PepsiCo’s
SoBe was instrumental in establishing the nutrient-enhanced drink
segment. Nutrient-enhanced drinks are marketed as refreshers, with
healthy ingredients added as a bonus. While brand owners stress beverages’
nutraceuticals ingredients as selling points, they do not want the
products confined to health food store aisles or specialty store shelves.
Marketers highlight the presence of nutraceuticals but do so conservatively,
usually without making definite, direct health claims, in order to
avoid running foul of the US Food and Drug Administration and other
government regulators.
The nutrient-enhanced
drink segment has been a difficult one to predict in the past several
years. The task is made more difficult by the fact that the category
is very much image-driven. SoBe cultivated a ribald, anti-establishment,
‘extreme’ sports image, with relatively little advertising
expenditures, but cynics wondered whether PepsiCo, which acquired
SoBe in 2001, would be able to continue the juggernaut without extinguishing
the entrepreneurial spirit that made the brand what it was. Although
its high-growth days appear to be over, PepsiCo has enjoyed modest
growth of SoBe in the past three years.
Nutrient-enhanced
fruit drinks constituted nearly 70% of segment sales in 1998. By 2003,
that number dropped to 24.4%. Nutrient-enhanced ready-to-drink teas
fell from 28.8% of the segment in 1998 to 14.9% in 2003. Picking up
some of the slack has been nutrient-enhanced dairy drinks, growing
from 3% of segment sales in 1998 to 6.6% in 2003.
Rapid
growth for enhanced
Enhanced
waters grew sales from virtually nothing in 1998 to over $300 million
in 2003 when they constituted more than half of the over $600 million
enhanced drink market that year. Propel, a vitamin-enhanced water
under the Gatorade trademark, is the leading enhanced water brand,
with wholesale sales of $160 million in 2003. Energy Brands Inc.’s
Glaceau Vitaminwater is the second-largest brand, with wholesale sales
of about $65 million in 2003.
Nutrient-enhanced
drinks are distributed in a multitude of channels. In the mid- to
late-1990s, SoBe established its bailiwick in immediate consumption,
cold drink channels such as delicatessens and convenience stores before
gradually branching out to supermarkets and other future consumption
outlets. Under the Gatorade distribution system, Propel has found
broad distribution in both future and immediate consumption channels.
Glaceau Vitaminwater started off as an immediate consumption brand,
like SoBe, but can also be found in clubs stores and supermarkets.
Since
1998, functional beverages have grown by more than 10% per year. Americans’
willingness to embrace healthier beverage choices has been the main
driver of success. This health trend is not expected to abate soon,
resulting in continued double-digit growth for functional beverages
until at least the end of the decade.
Roger
Dilworth is Senior Editor, Beverage Marketing Corporation (BMC), founded
in 1972, the leading supplier of information, consulting and financial
services specialising in meeting the needs of the global beverage
industry. For more information about "Sports and Energy Beverages
in the U.S." visit http://www.beveragemarketing.com/Sportsinus.htm
or call Charlene Salito, Beverage Marketing Corporation, Tel: 212-688-7640
ext. 1962.
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